The local epidemic in Shanghai has led to a decline in 22H1 revenue and return net profit, while high comprehensive costs affect gross profit margin. We are optimistic about the company's equipment and casting double-wheel drive, and the large-scale thin-wall casting business is expected to accelerate revenue growth (higher unit price). The company is expected to achieve a compound growth rate of 30% in the next three years. Refer to the comparable company, give the company 25 times PE in 2023, raise the target price to 41 yuan (original value 34 yuan), and maintain the "buy" rating.
The performance was in line with expectations, and the decline in 22H1 revenue and performance was affected by the epidemic. On the evening of August 26, 2022, the company released the 2022 mid-term report that 22H1 achieved revenue of 282 million yuan,-11.4% year-on-year, net profit of 6 million yuan,-86.7%, and non-return net profit of-6 million yuan, year-on-year-114.1%, which was in line with expectations.
We believe that the decline in 22H1 revenue is mainly due to the local epidemic in Shanghai affecting business development, casting delivery, equipment installation and commissioning, and the decline in net profit is mainly due to the decline in gross profit margin and the sharp increase in R & D expenses. With the improvement of the epidemic situation, the wall-mounted furnace heat exchanger enters the peak season, and the project speeds up the acceptance confirmation of revenue, the company's revenue in the second half of the year is expected to return to rapid growth.
Raw and auxiliary materials, manpower, logistics and other comprehensive costs to increase the gross profit margin under pressure, 22H1 gross profit margin fell 9.71pct. 22H1 comprehensive gross profit margin of 26.24%, year-on-year-9.71pcts, including casting products gross profit margin of 21.0% (year-11.0pcts), equipment gross profit margin of 40.2% (year-6.7pcts), mainly due to the increase in raw and auxiliary materials, manpower, logistics and other comprehensive costs, some unrecognized income equipment, casting business expenses in advance. The company's 22H1 sales / management / R & D / financial expense rates are respectively year-on-year-0.70/+2.27/+6.17/-0.23pcts, and R & D expenses are + 105% year-on-year, mainly focused on intelligent rapid casting system research and development and high-performance aluminum alloy casting lightweight research and development projects. We believe that with the landing of R & D projects, lower raw material costs, lower logistics and labor costs, the company's gross profit margin and net profit margin will be repaired.
Buybacks boost confidence, and many projects under research are expected to be converted into annual income next year. The company announced on May 28, 2022 to buy back 3000-60 million yuan of shares in a centralized bidding transaction, which will be used for employee stock ownership plans or equity incentives to improve market confidence. Secondly, projects such as intelligent rapid casting system, large aluminum alloy thin-walled parts, lightweight chassis parts for new energy vehicles, sand core equipment for large or super large marine engine cylinder blocks are expected to be sold and delivered step by step, which we expect to have a great impact on the annual income after next year.
Risk factors: global core-making equipment market competition intensifies; customer development is not as expected; raw material prices fluctuate.
Profit forecast, valuation and rating: the local epidemic in Shanghai led to a decline in 22H1 revenue and return net profit, while high comprehensive costs affected gross profit margin. We adjusted our profit forecast for 2022-2024 and lowered our performance for 2022. As many R & D projects are expected to begin to contribute revenue next year, we will increase the performance for 2023-2024. It is estimated that from 2022 to 2024, the EPS is 0.80, 1.63 and 2.22 yuan respectively (the original predicted value is 1.14, 1.56 and 2.14 yuan), and the corresponding PE is 39.2,19.2 and 14.1 times, respectively. We are optimistic about the company's equipment and casting two-wheel drive, large-scale thin-wall casting business is expected to accelerate revenue growth (higher unit price), and is expected to achieve a compound growth rate of 30% in the next three years. Considering that the average PE of comparable companies (Invik, Jiatu and Shenling Environment) is 30 times in 2023, and in view of the relatively low business certainty and long confirmation cycle of equipment business, we give the company 25 times PE in 2023, raising the target price to 41 yuan (original value 34 yuan) and maintaining the "buy" rating.